Taishin expects profitable second half

FORECAST The bank said provisioning expenses would remain at about the same level as the first half while bad-loan write-offs would fall, but analysts were more pessimistic

By Amber Chung / STAFF REPORTER

Taishin Financial Holding Co (台新金控), the nation's second-largest financial group by assets, will remain in the black in the second half of this year, despite likely weaker profitability sequentially because of the fallout from consumer bad debts, the company said yesterday.

However, analysts were more pessimistic, expressing concern about the firm's deteriorating asset quality.

Taishin Financial posted net income of NT$3.78 billion (US$115 million), or NT$0.61 per share, in the first half of this year, down 34 percent from NT$5.75 billion, or NT$1.35 per share, the previous year.

The substantial fall in profits resulted from rising provisioning costs -- which are made to cover potential bad debts -- at its banking arm of NT$9.5 billion and a write-off of up to NT$27.4 billion during the January-June period, according to the financial holding firm.

"At least the company will not incur a loss in the second half of this year," Taishin Financial's chief financial officer Carol Lai (賴昭吟) told a media briefing yesterday.

It remains to be seen whether performance will exceed the first-half's level, Lai said.

Taishin Financial's forecast comes amid bearish market sentiment, as most market watchers expect the company to report losses this year. JP Morgan Chase Bank, for example, forecasts a net loss of NT$6.2 billion, or NT$0.88 per share for the firm.

Second-half provisioning expenses at its flagship unit Taishin International Bank (台新銀行), the nation's second-largest credit card issuer, would be around NT$9.5 billion, similar to the level in the first half, while bad loan write-offs are expected to drop, as the worst was over, the company said.

"The worst is not over yet," said Jesse Wang (王嘉樞), head of equity research at BNP Paribas Securities (Taiwan) Co. "This is a short-lived lull before the next storm emerges."

As the legislature will review the personal bankruptcy bill during the next legislative session, which starts next month, credit and cash card debtors, who each bear an average NT$1.7 million in debt even after a debt relief program, may hold off from making repayments, he said.

"This would be the next blow to the company, if it happens," Wang said.

Taishin Financial could be hit worse by mounting consumer bad debt than its rivals, and needs to raise funds as soon as possible to sustain its capitalization, according to the analyst.

Taishin International plans to dispose of another batch of bad loans worth NT$15 billion in the second half at a discount of around 95 percent to interested buyers, Lai said.

The bank recovered NT$576 million by selling NT$9.5 billion of bad loans in June, representing a recovery ratio of 5.75 percent.

Losses stemming from the disposals, which could exceed NT$23 billion, will be amortized over the next five years, Lai said.

A one-time write-off will bring the bank's capital adequacy ratio to below 10 percent and in turn affect the lender's ratings, making it difficult to raise funds in the future, she said.

Mounting bad debt has hurt Taishin International's asset quality. Its coverage ratio, which gauges whether reserves are sufficient to cover bad loans, dropped to 54 percent in June from 94 percent in March, according to the data.